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Home prices to rise with wages: economists

Evan Schwarten

Australia's housing market is improving, just don't expect another boom.

Two of Australia's most prominent economists say they expect house prices to grow modestly in the forseeable future.

A return to boom times is unlikely but so is a significant fall in prices.

National Australia Bank group chief economist Alan Oster says the property market has recovered from its weak patch in 2012.

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"Clearly the market is starting to improve and we would expect it to increase moderately as we go forward," he told the Bloomberg Australian Economic Summit.

Westpac chief economist Bill Evans says house prices will rise roughly in line with incomes.

"But we're not expecting it to improve to the point where people are becoming over leverage," he told the summit.

House prices rose 2.8 per cent across Australian capital cities during the first three months of 2013, according to property research company RP Data.

And both men say, despite ongoing concerns many would-be home-buyers are priced out of the market, housing is more affordable, relative to incomes, than it has been in years.

"In Sydney for instance affordability levels are the best they've been for 10 years," Mr Evans said.

"So relative to Australia's affordability measures in the past the current situation looks quite manageable."

Mr Oster said, compared to borrowing levels of the past few decades, many Australian households could afford to borrow more than they currently do in order to purchase a new house or investment property.

But he said they were reluctant to take on additional debt following the global financial crisis.

"Australian consumers can actually gear up quite a lot but I don't see them doing it, because fundamentally they are still scared," he said.

However, University of Western Sydney academic Professor Steve Keen warned the recent rise in house prices had come from investors and sustained growth in the sector was unlikely.

"All the turnaround since 2012 has been speculators getting into the market expecting prices rises," he told the summit.

Professor Keen said that, compared to other countries, Australian households were already highly indebted.

"That is what is going to put the cap on price appreciation continuing."